-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BKxtI/tY9FJt+0ScSQo+RNOQ9UQ06eeqroeoeG9GutYXxMqaiCXXvHfU4eZmTG81 QmvhKinGLevmCrWGgvP1Fw== 0001017062-97-001980.txt : 19971114 0001017062-97-001980.hdr.sgml : 19971114 ACCESSION NUMBER: 0001017062-97-001980 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970928 FILED AS OF DATE: 19971112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALCOMP TECHNOLOGY INC CENTRAL INDEX KEY: 0000818470 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 060888312 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16071 FILM NUMBER: 97713632 BUSINESS ADDRESS: STREET 1: 2411 W LA PALMA AVE CITY: ANAHEIM STATE: CA ZIP: 92803 BUSINESS PHONE: 5128731540 MAIL ADDRESS: STREET 1: 60 SILVERMINE ROAD CITY: SEYMOUR STATE: CT ZIP: 06483 FORMER COMPANY: FORMER CONFORMED NAME: SUMMAGRAPHICS CORP DATE OF NAME CHANGE: 19920703 10-Q 1 QUARTERLY REPORT PERIOD ENDING 09/28/97 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [_] FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ COMMISSION FILE NUMBER 0-16071 ---------------- CALCOMP TECHNOLOGY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 06-0888312 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 2411 W. LA PALMA AVENUE, 92803 ANAHEIM, CALIFORNIA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(714) 821-2000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. ---------------- Yes [X] No [_] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OF COMMON STOCK OUTSTANDING AT OCTOBER 24, 1997 $.01 par value 47,069,950
CALCOMP TECHNOLOGY, INC. TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 28, 1997 (unaudited) and December 29, 1996............................... 1 Condensed Consolidated Statements of Operations for the three and nine months ended September 28, 1997 and September 29, 1996 (unaudited)..................................................... 2 Condensed Consolidated Statements of Cash Flows for the nine months ended September 28, 1997 and September 29, 1996 (unaudited)..................................................... 3 Notes to Condensed Consolidated Financial Statements (unaudited). 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................... 7 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders.............. 11 Item 6. Exhibits and Reports on Form 8-K................................. 11 Signatures................................................................ 12
CALCOMP TECHNOLOGY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 28, DECEMBER 29, 1997 1996 ------------- ------------ (UNAUDITED) (IN THOUSANDS) ASSETS: Current Assets: Cash.............................................. $ 4,913 $ 15,290 Accounts receivable, net.......................... 36,977 48,230 Accounts receivable from affiliates, net.......... 2,230 3,929 Inventories (Note 3).............................. 53,734 57,765 Net assets held for sale (Note 6)................. -- 15,119 Prepaids and other current assets................. 2,784 5,866 -------- -------- TOTAL CURRENT ASSETS............................ 100,638 146,199 Property, plant and equipment, net.................. 28,656 26,891 Goodwill, net....................................... 81,502 82,080 Other assets........................................ 19,357 20,915 -------- -------- TOTAL ASSETS.................................... $230,153 $276,085 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities: Accounts payable.................................. $ 18,956 $ 27,554 Deferred revenue.................................. 7,590 9,217 Accrued restructuring costs....................... 2,672 9,355 Accrued reorganization costs (Note 2)............. 7,247 5,595 Other accrued liabilities......................... 7,594 10,871 Line of credit.................................... -- 2,948 Line of credit with Majority Shareholder (Note 4). 45,274 -- Other current liabilities......................... 21,748 19,428 -------- -------- TOTAL CURRENT LIABILITIES....................... 111,081 84,968 Other long-term liabilities......................... 8,613 9,733 Line of Credit with Majority Shareholder (Note 4)... -- 28,880 STOCKHOLDERS' EQUITY Preferred stock, $0.1 par value, 5,000,000 shares authorized, none issued.......................... -- -- Common stock, $.01 par value, 60,000,000 shares authorized, 47,017,700 and 46,898,650 shares issued on September 28, 1997 and December 29, 1996, respectively............................... 470 469 Additional paid-in capital........................ 287,165 286,860 Accumulated deficit............................... (182,510) (141,957) Cumulative translation adjustment................. 5,799 7,597 Treasury stock, at cost, 49,000 shares............ (465) (465) -------- -------- TOTAL STOCKHOLDERS' EQUITY........................ 110,459 152,504 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...... $230,153 $276,085 ======== ========
See accompanying notes to condensed consolidated financial statements. 1 CALCOMP TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED --------------------------- --------------------------- SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29, 1997 1996 1997 1996 ------------- ------------- ------------- ------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) NET REVENUE............. $ 47,336 $ 65,564 $ 159,919 $ 168,370 Cost applicable to revenues............... 45,360 49,759 135,780 130,427 ---------- ---------- ---------- ---------- Gross Profit.......... 1,976 15,805 24,139 37,943 EXPENSES: Selling............... 8,705 13,320 29,221 36,748 Research and development.......... 7,592 5,784 16,858 15,882 General and administrative....... 6,714 6,571 17,646 14,912 Corporate expenses from Majority Shareholder.......... 725 1,094 2,175 3,456 Gain on disposal of facility (Note 6).... -- -- (5,873) -- ---------- ---------- ---------- ---------- LOSS FROM OPERATIONS.... (21,760) (10,964) (35,888) (33,055) Interest expense........ (845) -- (2,920) -- Other (expense) income, net.................... (909) 443 (993) 1,185 ---------- ---------- ---------- ---------- LOSS BEFORE INCOME TAXES.................. (23,514) (10,521) (39,801) (31,870) Provision for income taxes.................. 225 213 752 831 ---------- ---------- ---------- ---------- NET LOSS................ $ (23,739) $ (10,734) $ (40,553) $ (32,701) ========== ========== ========== ========== NET LOSS PER SHARE OF COMMON STOCK........... $ (0.51) $ (0.24) $ (0.86) $ (0.78) WEIGHTED-AVERAGE SHARES OUTSTANDING............ 46,943,435 44,119,613 46,913,578 41,868,509
See accompanying notes to condensed consolidated financial statements. 2 CALCOMP TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED --------------------------- SEPTEMBER 28, SEPTEMBER 29, 1997 1996 ------------- ------------- (IN THOUSANDS) OPERATING ACTIVITIES: Net loss.......................................... $(40,553) $(32,701) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization................... 9,100 8,732 Gain on disposal of facility.................... (5,873) -- Restructuring payments.......................... (6,683) -- Reorganization payments......................... (1,988) -- Investee income................................. (913) (825) Net changes in operating assets and liabilities. 7,232 (545) -------- -------- Net cash used in operating activities......... (39,678) (25,339) INVESTING ACTIVITIES: Net proceeds on disposal of facility.............. 21,121 -- Purchase of property, plant and equipment......... (6,071) (5,377) Proceeds from disposition of property, plant and equipment........................................ 867 59 Dividends received................................ 168 311 Cash acquired in connection with purchase......... -- 2,801 -------- -------- Net cash provided by (used for) investing activities................................... 16,085 (2,206) FINANCING ACTIVITIES: Proceeds from line of credit with Majority Shareholder...................................... 16,394 5,873 Repayment of revolving line of credit............. (2,948) -- Issuance of common stock.......................... 306 -- Net cash received from Majority Shareholder....... -- 22,085 -------- -------- Net cash provided by financing activities..... 13,752 27,958 Effect of exchange rate changes on cash........... (536) (200) -------- -------- Net change in cash................................ (10,377) 213 Cash at beginning of period....................... 15,290 14,574 -------- -------- Cash at end of period............................. $ 4,913 $ 14,787 ======== ======== Supplementary disclosures of cash flow information: Net income taxes (received) paid................ $ (263) $ 1,091 Interest paid................................... $ 2,948 $ 41
See accompanying notes to condensed consolidated financial statements. 3 CALCOMP TECHNOLOGY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 28, 1997 (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month and nine month period ended September 28, 1997, are not necessarily indicative of the results that may be expected for the Company's fiscal year ended December 28, 1997, or any other interim period. Certain reclassifications of prior year amounts have been made to conform to the current year presentation. It is suggested that the financial statements be read in conjunction with the information contained in the Company's Annual Report on Form 10-K for the year ended December 29, 1996, filed with the Securities and Exchange Commission. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way in which publicly-held companies report financial and descriptive information about its operating segments in financial statements for both interim and annual periods. The Statement also requires additional disclosures with respect to products and services, geographic areas of operation and major customers. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. The adoption of SFAS No. 131 will have no impact on the Corporation's consolidated results of operations, cash flows or financial position, but is expected to increase the level of disclosure of segment information. In February 1997, the Financial Accounting Standards Board Issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share", which establishes new standards for computing and disclosing earnings per share. SFAS No. 128 requires dual presentation of "basic" and "diluted" earnings per share, each as defined therein, which replace primary and fully diluted earnings per share, respectively, required under current guidance. SFAS No. 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997. Early adoption is not permitted; however, after the effective date, all prior period earnings per share data presented will be restated to conform to the provisions of the new statement. Management does not currently anticipate that earnings per share computed under the new standard will differ materially from earnings per share computed and disclosed under current guidance. Effective January 1, 1997, the Company adopted the American Institute of Certified Public Accountants' Statement of Position (SOP) No. 96-1, "Environmental Remediation Liabilities." In addition to providing a nonauthoritative discussion of major federal legislation dealing with environmental matters, SOP 96-1 also provides authoritative guidance on certain remediation liabilities. The impact of the adoption of this SOP was not material to the Company's consolidated results of operations, financial position or disclosures. 2. MERGER OF SUMMAGRAPHICS CORPORATION WITH CALCOMP, INC. CalComp Technology, Inc. (the "Company") completed a Plan of Reorganization (the "Exchange") for the exchange of stock of CalComp Inc. for stock of Summagraphics Corporation as of July 23, 1996. Pursuant to the Exchange, the Company issued to Lockheed Martin Corporation ("Majority Shareholder") 40,742,957 shares of Common Stock of the Company, representing 89.7% of the total outstanding shares of Common Stock of the Company following such issuance, in exchange for all of the outstanding capital stock of CalComp Inc. As a result of the Exchange, Lockheed Martin Corporation acquired control of the Company and CalComp Inc. 4 CALCOMP TECHNOLOGY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 28, 1997 (UNAUDITED) 2. MERGER OF SUMMAGRAPHICS CORPORATION WITH CALCOMP, INC.--(CONTINUED) became a wholly-owned subsidiary of the Company. In connection with the Exchange, the Company changed its name from Summagraphics Corporation to CalComp Technology, Inc. and changed its year end from May 31 to a fifty-two, fifty-three week fiscal year ending on the last Sunday of December. The purchase was accounted for as a "reverse acquisition" whereby CalComp Inc. was deemed to have acquired CalComp Technology, Inc. (formerly Summagraphics Corporation) for financial reporting purposes. However, CalComp Technology, Inc. remains the continuing legal entity and registrant for Securities and Exchange Commission filing purposes. Consistent with reverse acquisition accounting, the historical financial statements of the Company presented for the three month and nine month periods ended September 29, 1996, are the consolidated financial statements of CalComp Inc. and differ from the consolidated financial statements of the Company previously reported. During the nine months ended September 28, 1997, the purchase price allocation for the exchange was adjusted to reflect differences between the current and preliminary estimate of costs incurred to terminate facility leases and to reflect actual costs incurred related to various acquisition liabilities. These purchase price allocation adjustments resulted in an increase to goodwill of $3,640,000. 3. INVENTORIES Inventories, net of reserves, are as follows:
SEPTEMBER 28, DECEMBER 29, 1997 1996 ------------- ------------ (IN THOUSANDS) Raw materials and purchased components......... $13,932 $16,719 Work in process................................ 654 699 Finished goods................................. 39,148 40,347 ------- ------- $53,734 $57,765 ======= =======
4. LINE OF CREDIT AND CASH MANAGEMENT AGREEMENTS WITH MAJORITY SHAREHOLDER Revolving Credit Agreement: In July 1996, the Company and the Majority Shareholder entered into a Revolving Credit Agreement, which was subsequently amended and restated ("Agreement"), pursuant to which the Majority Shareholder will provide, from time to time, financing of up to $73,000,000 for repayment of specified indebtedness and general corporate purposes including, without limitation, financing the working capital needs of the Company and its subsidiaries. Among other things, the Agreement provides for a grant of a general security interest in all the Company's assets to the Majority Shareholder. The Agreement has a termination date of July 22, 1998, however, the commitment of the Majority Shareholder to make loans to the Company may be canceled, with 120 days prior written notice, at any time after December 20, 1997. The Agreement bears interest, at the Company's option, at either (1) a rate per annum equal to the higher of the Federal Funds Rate as published in the Federal Reserve System plus 0.5% or the rate publicly announced from time to time by Morgan Guaranty Trust Company of New York as its "prime" rate or (2) LIBOR plus 2.0%. The Agreement contains certain negative and affirmative covenants. As of September 28, 1997, the Company was in breach of certain financial covenants. On October 28, 1997, the Majority Shareholder waived compliance by the Company of these financial covenants as of September 28, 1997. The Company and the 5 CALCOMP TECHNOLOGY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 28, 1997 (UNAUDITED) 4. LINE OF CREDIT AND CASH MANAGEMENT AGREEMENTS WITH MAJORITY SHAREHOLDER-- (CONTINUED) Majority Shareholder are currently in discussions regarding amending the Revolving Credit Agreement to, among others, permit compliance with these covenants in future quarters. There is currently no required prepayment or scheduled reduction of availability of loans under the Agreement. Cash Management Agreement: Additionally, in July 1996, the Company and the Majority Shareholder entered into a cash management agreement whereby the Majority Shareholder will provide cash advances up to $2,000,000 to the Company for cash shortfalls. This agreement has a termination date of June 1, 1998 and bears interest at the Federal Funds Rate. As of September 28, 1997, the Company had a net balance of $45,274,000 on the Revolving Credit and Cash Management Agreements, with an interest rate of 7.7% on the Revolving Credit Agreement and 5.4% on the Cash Management Agreement. 5. PER SHARE DATA Net loss per share has been calculated by dividing the net loss by the weighted average number of common shares outstanding during the period. All common stock equivalents have been excluded from the calculation of weighted average common shares outstanding because their inclusion would be anti- dilutive or decrease the loss per share amount otherwise computed. 6. DISPOSAL OF HEADQUARTERS FACILITY On June 24, 1997, the Company completed the sale of its 27.9 acre headquarters facility, including ten buildings, in Anaheim, California, to Lincoln Property Company, Inc. of Dallas, Texas and D.L.J. Real Estate Capital Partners for $21.5 million, less associated costs to sell. During the fourth quarter of fiscal 1996, the Company had previously estimated it would incur a loss on the facility and had written the facility down to its then current appraised value of $15.1 million. As a result of this write-down and the subsequent sale of the facility for $21.5 million, less associated costs to sell, the Company recognized a gain on the sale of $5.9 million. Under terms of the transaction, the Company will lease back approximately 138,500 square feet of space, or two of the ten buildings located on the property, for one year, with an option to continue the lease for an additional year. The sale of the Anaheim property is part of the Company's previously announced program to reduce operating expenses and streamline its infrastructure. Proceeds from the sale of the property were used to reduce outstanding borrowings under a line of credit the Company has with the Majority Shareholder. 7. CONTINGENCIES Legal: On November 18, 1996, the Company acquired all the outstanding common stock of Topaz Technologies, Inc. ("Topaz"), a privately held company in Sunnyvale, California. Topaz is a developer and manufacturer of a proprietary inkjet printing technology. A complaint was filed on January 25, 1997 by Raster Graphics, Inc. ("Raster Graphics"), against Topaz, the former shareholders of Topaz, Andreas Bibl, Deane Gardner and John Higginson (the former "Topaz Shareholders"), and the Company in California Superior Court in Santa Clara County. The complaint alleged, among other things, misappropriation of trade secrets, breach of fiduciary duty, unfair competition, breach of contract and conversion arising from the employment by Raster 6 CALCOMP TECHNOLOGY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 28, 1997 (UNAUDITED) 7. CONTINGENCIES--(CONTINUED) Graphics of the former Topaz Shareholders who founded Raster Graphics in 1987 while they participated in the development of certain inkjet technology. On April 18, 1997, Raster Graphics filed an amended complaint, dismissing its claims against the Company and amending the complaint to focus on technology relating to a test fixture that had been developed at Raster Graphics. The complaint seeks unspecified compensatory damages, punitive damages, costs and injunctive relief. The Company continues to believe that the inkjet printing technology developed by Topaz is proprietary to Topaz and is not based on Raster Graphics technology, and that this suit is without merit. A complaint was filed on October 14, 1997 by Wacom Co., Ltd. and Wacom Technology Corp. against CalComp Inc., a wholly-owned subsidiary of the Company, in the U.S. District Court for the Central District of California. The complaint alleged, among other things, that CalComp Inc.'s sale of ULTRASLATE digitizer tablets infringes U.S. Patent Nos. 4,878,553 (now Reexamination Certificate #3325), 5,028,745 and 4,999,461 and infringes Wacom's common law trademark ULTRAPEN. Wacom has requested preliminary and permanent injunctive relief against continued infringement of the first two patents, pre-judgment interest and, among other things, has requested profits for actual damages for trademark infringement, with interest, costs and punitive damages, and an award of its attorneys' fees and costs. The Company, although it has not completed its investigation of these allegations, does not believe that any of the allegations made by Wacom in this suit have merit, and intends to defend itself against all of the claims. The Company is also party to other legal actions in the normal course of its business. The Company does not believe that the disposition of any of these matters will have a material adverse effect on its consolidated financial position or results of operations taken as a whole. Environmental Matters: In connection with the sale of the Company's headquarters facility in Anaheim, California, the Company has agreed to remain obligated to address certain environmental conditions which existed at the site, prior to the closing of the sale, if remediation is required by appropriate governmental authorities. In addition, Lockheed Martin, the Company's Majority Shareholder, has guaranteed the performance of the Company under this environmental agreement. The Company's environmental status to date includes the 1988 submission of a plan to the California Regional Water Quality Control Board (the Water Board) relating to the Company's facility in Anaheim, California. This plan includes continual monitoring of several ground water sampling wells at the site. No remediation has been ordered to date by the Water Board. However, the company is currently conducting a study to evaluate possible remediation techniques in the event of any future governmental requirements. Based on this evaluation, and the Company's continued monitoring of the various ground water sampling wells at the site, the Company believes that any remediation, if requested by the Water Board, would not be material to the Company's consolidated financial statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations On July 23, 1996, Summagraphics Corporation ("Summagraphics") and CalComp Inc. ("CalComp"), a wholly-owned subsidiary of Lockheed Martin Corporation, effected a plan of reorganization for the exchange of CalComp stock for Summagraphics stock, after which Summagraphics changed its name to CalComp Technology, Inc. (the "Company"). The newly reorganized company adopted a fiscal year ending on the last Sunday of December. For accounting purposes, CalComp was treated as the acquiring company. Therefore, the financial statements for the prior year periods are those of CalComp and reflect the Company's acquisition of Summagraphics as of July 23, 1996. 7 CALCOMP TECHNOLOGY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 28, 1997 (UNAUDITED) During fiscal 1997, the purchase price allocation for the Exchange was adjusted to reflect differences between the current and preliminary estimate of costs incurred to terminate facility leases and actual costs incurred related to various acquisition liabilities. These purchase price allocation revisions resulted in an adjustment to increase goodwill by $3.6 million. Revenues Net revenues for the quarter ended September 28, 1997 were $47.3 million as compared to $65.6 million for the same period in 1996, a decrease of 28%. The decline in revenue resulted primarily from decreases in demand due to the maturity of the Company's output products versus new product offerings of the competition and the associated price reductions necessary to maintain market position and prepare for the introduction of the Company's new CrystalJet product line. In addition, the reduced revenue can be attributed to lower service revenues, resulting from the transition by customers to lower cost products which traditionally do not capture the same level of service contract revenue as higher cost products, and a lower rate of service contract renewals as older generation products are retired from service. Net revenues for the nine months ended September 28, 1997 were $159.9 million as compared to $168.4 million for the same period in 1996, a decrease of 5%. The decrease in year-to-date revenue compared with fiscal 1996 resulted primarily from the lower plotter and service revenue as discussed for the quarterly results above, partially offset by increases in sales of Cutter and Digitizer products, resulting from the Company's acquisition of Summagraphics' in the third quarter of the prior year. Gross Profit Gross profit as a percentage of net revenue was 4% for the third quarter of 1997, compared to 24% for the third quarter of 1996. On a year-to-date basis, gross profit was 15% of net revenue versus 23% for the comparable period in the prior year. The significant decrease in gross profit as a percentage of sales resulted primarily from additional reserves established during the quarter for end-of-life products. Specifically, the Company initiated its transition plan to rationalize existing output product lines and accelerate the end-of-life process for those products that will no longer be offered to customers as a result of the introduction of a new generation of inkjet products based on CalComp's proprietary CrystalJet technology. The gross margin as a percentage of revenue, before these one time adjustments, was 19% for the quarter and on a year-to-date basis. In addition, gross profit was impacted by continued competitive pressure on the Company's mature end-of-life output product lines combined with the continued shift in the mix of products sold towards lower cost, lower margin products and the deterioration in service gross margins, primarily due to decreased service revenues without corresponding cost reductions. The companies that participate in the industry are highly competitive. Reduced unit selling prices and shortened product life cycles are expected to continue to place pressure on the Company's margins. Operating Expenses Operating expenses for the quarter decreased 11%, or $3.1 million, to $23.7 million, compared to the prior year quarter of $26.8 million. On a year-to- date basis, operating expenses decreased 15%, or $11.0 million, to $60.0 million, compared to $71.0 million for the prior year period, primarily due to the recognition of a one time gain of $5.9 million from the sale of the Company's headquarters facility during the second quarter of 1997. 8 CALCOMP TECHNOLOGY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 28, 1997 (UNAUDITED) Selling expenses as a percentage of net revenue declined to 18% for the third quarter and first nine months compared to 20% and 22% of net revenues for the third quarter and first nine months of 1996, respectively. The reduction in spending resulted primarily from the benefits of facility and staffing consolidations as well as reductions in advertising and marketing expenditures. Development expenses as a percentage of net revenue were 16% for the third quarter and 11% for the first nine months of 1997, compared to 9% for both the third quarter and for the first nine months of 1996. These increases reflect the Company's continued commitment to the development of new proprietary CrystalJet inkjet and supplies technologies. General and administrative expenses increased as a percentage of net revenue to 14% for the third quarter and 11% for the first nine months of 1997, as compared to 10% for the third quarter and 9% for the first nine months of 1996, respectively. These increases relate primarily to higher expenses for new management information systems; increases in goodwill and intangible amortization expenses resulting from the Summagraphics and Topaz acquisitions; and relocation and facility consolidation expenses required as a result of the sale of the Company's headquarters facility. These increases were partially offset by cost reductions relating to decreased headcount, facility lease consolidation, and fixed asset disposals resulting from restructuring actions taken during 1996 and 1997. Corporate expenses from the Company's Majority Shareholder decreased to $0.7 million for the quarter and $2.2 million year to date, compared to $1.1 million for the third quarter and $3.5 million for the first nine months of 1996. These decreased are due to a reduction in amounts allocated to the Company by the Majority Shareholder. Interest Expense Interest expense was $0.9 million for the quarter and $2.9 million year to date, representing 2% of net revenues for the periods. The current year interest expense resulted primarily from borrowings from the Majority Shareholder under the Revolving Credit and Cash Management Agreements. This is a result of borrowings during 1997 not required in the prior year. Income Taxes Income taxes of $0.2 million and $0.8 million for the fiscal 1997 third quarter and year to date, respectively, remained flat as compared to the same periods in 1996. These taxes resulted primarily from miscellaneous state tax requirements and the provision of foreign taxes on profitable international locations. Liquidity and Capital Resources When possible, the Company finances its working capital needs and capital expenditure requirements from internally generated funds. At September 28, 1997, the Company had cash of $4.9 million compared to $15.3 million at December 29, 1996. The decrease in cash balances compared to the prior year relate to management's focus on applying all excess cash balances toward the Company's credit agreements with the Majority Shareholder. The Company's cash balances are held primarily in its foreign locations. During the nine months ended September 28, 1997, the Company used $39.7 million in operations primarily to fund its continuing net losses and $8.7 million in payments relating to the Company's reorganization and 9 CALCOMP TECHNOLOGY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 28, 1997 (UNAUDITED) restructuring plans announced in 1996. In addition, the Company used $6.1 million for investments in plant and equipment and $2.9 million to repay preexisting Summagraphics debt. These uses of cash were funded primarily by borrowings from the Company's Majority Shareholder of $16.4 million, pursuant to the Revolving Credit and Cash Management Agreements ("Credit Agreements"), $21.1 million in net proceeds from the sale of the Company's headquarters facility in Anaheim, California and $0.9 million in net proceeds from the sale of fixed assets. The Credit Agreements with the Majority Shareholder provide the Company access to $75 million of general purpose financing. These Credit Agreements contain typical covenants with respect to the conduct of the Company's business and require the maintenance of various financial balances and ratios. As of September 28, 1997, the Company was in breach of certain financial covenants. On October 24, 1997, the Majority Shareholder waived compliance by the Company of these financial covenants as of September 28, 1997. The Company and the Majority Shareholder are currently in discussions regarding amending the Revolving Credit Agreement to, among others, permit compliance with these covenants in future quarters. As of September 28, 1997, the Company has utilized $45.3 million of amounts available under its Credit Agreements. During the first nine months of 1997, the Company spent $0.7 million in the implementation of its management information systems and $6.0 million for new equipment to support its new generation of inkjet products. It expects to spend $0.5 million during the remainder of 1997 on its management information systems and an additional $1.5 million on equipment to support its new generation of inkjet products. The Company anticipates that funds available under the Credit Agreements with the Majority Shareholder should be sufficient to fund the Company's anticipated operating needs for the foreseeable future. Restructuring During the fourth quarter of 1996, the Company incurred a one time restructuring charge of $21.0 million consisting of $10.9 million for the write down of the Company's headquarters facility to its estimated fair market value, lease termination and fixed asset disposition costs of $3.2 million related to the company exiting from certain facilities, and severance costs of $6.9 million associated with the elimination of 285 positions worldwide. The Company has spent $6.7 million year-to-date and a total of $7.4 million against these accruals to cover primarily severance actions and the elimination and consolidation of facilities. In June 1997, the Company completed the sale of its 27.9 acre headquarters facility in Anaheim, California for $21.5 million, less associated costs to sell. During the fourth quarter of 1996, the Company had previously estimated it would incur a loss on the facility and had written the facility down to its then current appraised value of $15.1 million. As a result of this write-down and the subsequent sale of the facility, the Company recognized a gain on the sale of $5.9 million. Pursuant to the transaction, the Company is leasing back approximately 138,500 square feet of space for one year, with an option to extend for a second year. Proceeds from the sale of the property were used to reduce outstanding borrowings under the Credit Agreements with the Company's Majority Shareholder. The sale of the Anaheim property was part of the Company's previously announced program to reduce operating expenses and streamline the Company's infrastructure. This Report on Form 10-Q contains statements which, to the extent that they are not recitations of historical facts, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All forward looking statements involve risks and uncertainties. The forward looking statements in this Report on Form 10-Q have been made subject to the safe harbor protections provided by Sections 27A and 21E. 10 CALCOMP TECHNOLOGY, INC. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 1996 Annual meeting of Shareholders of CalComp Technology, Inc. was held on July 22, 1997. A total of 45,232,096 of the Company's shares were present or represented by proxy at the meeting. This represented more than 96.4% of the Company's shares outstanding. The individuals named below were elected to serve one year terms as Directors of the Company:
TOTAL VOTE FOR TOTAL VOTE WITHHELD NAME EACH DIRECTOR FROM EACH DIRECTOR ---- -------------- ------------------- Peter B. Teets............................ 45,176,456 55,640 John C. Batterton......................... 45,171,256 60,840 Neil A. Knox.............................. 45,172,656 59,440 Gary P. Mann.............................. 45,171,656 60,440 Terry F. Powell........................... 45,171,656 60,440 Kenneth R. Ratcliffe...................... 45,172,656 59,440 Gerald W. Schaefer........................ 45,176,456 55,640 Walter E. Skowronski...................... 45,176,426 55,670
The election of Ernst & Young L.L.P. as independent accountants was ratified, with 45,221,396 shares voting for, 3,900 shares voting against and 6,800 shares abstaining. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits--The following exhibits are included herein: 10.27 Employment/Termination Agreement for Winfried Rohloff, dated July 31, 1997. 10.28 Summagraphics Corporation 1987 Stock Plan--Registration Statement (filed on Form S-8, dated August 20, 1997, and incorporated herein by reference). 10.29 1997 Second Amendment to 1994 Addendum to Joint Venture Relationships between CalComp Inc., Nippon Steel Corporation, Sumitomo Corporation and NS CalComp Corp., dated September 10, 1997. 10.30 Relocation Agreement for John C. Batterton, dated September 16, 1997. 27 Financial Data Schedule.
(b) Reports on Form 8-K: None. 11 CALCOMP TECHNOLOGY, INC. SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. CalComp Technology, Inc. (Registrant) Date: November 12, 1997 /s/ John C. Batterton ------------------------------------- JOHN C. BATTERTON President and Chief Executive Officer /s/ John J. Millerick ------------------------------------- JOHN J. MILLERICK Senior Vice President, Finance and Chief Financial Officer 12 EX-10.27 2 EMPLOYMENT/TERMINATION AGMT FOR WINFRIED ROHLOFF EXHIBIT 10.27 [LETTERHEAD OF CALCOMP] July 31, 1997 Winfried Rohloff Sr. Vice President Digital Printing Systems Division Anaheim, CA 92803 Dear Winfried: The following agreement is a good faith settlement of an actual and/or potential dispute between CalComp and Employee and is entered into for the purpose of resolving any differences and to avoid the burden, expense, delay and uncertainties of litigation and administrative actions. This agreement is hereby made effective July 1, 1997 among CalComp Technology, Inc. located at 2411 West La Palma Avenue, Anaheim, California 92801, represented by Mr. John C. Batterton, President and CEO; CalComp GmbH, Hermann-Klammt-Strasse 1, 41460, Neuss, Germany, represented by its sole shareholder, CalComp Technology, Inc., the latter being represented by Mr. John C. Batterton, and Mr. Winfried Rohloff, Im Wingert 19, 40699 Erkrath, Germany. It is agreed that you are hereby appointed Sr. Vice President, General Manager for the Digital Printing Systems Division of CalComp Technology, Inc. Prior employment contracts of December 1, 1987 together with the supplements dated November 22, 1988; June 17, 1993; August 23, 1994; June 25, 1996 ("Agreement") and January 10, 1997 will remain in effect while a decision on the arrangements described in paragraph six is reached. Notwithstanding the foregoing, the following will govern any severance payment that will be made in the case of termination, removal from your current position unless you and we agree on a new position, or remuneration reduction: an amount equal to one year's remuneration (including base salary, MICP at the target for the year in which termination occurs, medical, statutory social, company pension and company car value benefits) plus statutory notice period of six (6) months to the end of the quarter and lump sum cash payment for any remaining accrued vacation. In the event the target for MICP has not yet been established for the year when termination occurs, the target shall be deemed to be 40% of your then current salary. You shall also receive all amounts due you under the Lockheed Martin and CalComp Deferred MICP Plans and have all rights with respect to stock options granted to you (under the terms of the Lockheed Martin and CalComp stock option plans) which exist at the time of your termination, and have all rights under the Social Benefit Plan ("Versorgungsordnung") of CalComp GmbH. The new appointment does not affect your activities as Managing Director ("Geschaeftsfuehrer") of CalComp GmbH. It is agreed that you will continue to perform activities on behalf of and for the benefit of the German GmbH. You will, therefore, also spend, to a certain extent, working days for CalComp GmbH in Neuss as required. The split of the remuneration payments between CalComp GmbH and CalComp Technology, Inc. will continue to be 27/73, respectively, if appropriate. Insofar as the remuneration relates to CalComp GmbH and is paid by CalComp GmbH, social security (pension) charges, medical and statutory social benefits and wage taxes will be withheld. Winfried Rohloff July 31, 1997 Page 2 You will continue to perform your activities for the two "CalComp" companies primarily from Anaheim, California. CalComp Technology, Inc. shall continue to compensate you for extraordinary and additional expenses incurred while on, or in returning from your non-domestic location based on the terms and the conditions of the temporary assignment agreement (copy attached as Exhibit I) of June 25, 1996. In January 1998, CalComp Technology, Inc. and you will mutually agree either to transfer you from Germany to Anaheim, California based on the terms and conditions of Lockheed Martin Corporate Policy No. CPS-539, or the severance offered in paragraphs #2 and #3 will go into effect as the full, complete and final settlement of all Employee's claims and potential claims against CalComp as defined above, including, but not limited to: wages, salary, overtime pay, reinstatement, pay in lieu of notice, bonuses, vacation, sick pay, benefits (other than those specified in the foregoing paragraphs), insurance, compensatory and punitive and liquidated damages, attorney's fees. You will also receive tax assistance through CalComp's agent, presently Ernst & Young, under the provisions covered by the Lockheed Martin Policy as follows: - Preassignment Consultation - Tax Preparation - Tax Protection Anaheim: 7/31/97 Anaheim: 7/31/97 ---------------------- ---------------------- Date Date /s/ JOHN C. BATTERTON /s/ JOHN C. BATTERTON - ------------------------------ ------------------------------ John C. Batterton John C. Batterton for President & CEO CalComp GmbH CalComp Technology, Inc. ACCEPTED: Anaheim: 7/31/97 ---------------------- Date /s/ WINFRIED ROHLOFF - ------------------------------ Winfried Rohloff Enclosure EX-10.29 3 1997 2ND AMENDMENT TO JOINT VENTURE RELATIONSHIP EXHIBIT 10.29 1997 SECOND AMENDMENT TO 1994 ADDENDUM TO JOINT VENTURE RELATIONSHIP BETWEEN CALCOMP INC., NIPPON STEEL CORPORATION, SUMITOMO CORPORATION AND NS CALCOMP CORP. This 1997 Amendment to 1994 Addendum to the Joint Venture Relationship (hereinafter "Addendum") is entered into and is effective as of September 10, 1997 by and between CalComp Inc., a California corporation (hereinafter "CalComp"); CalComp Pacific, Inc., a Nevada corporation (hereinafter "CPI"); Nippon Steel Corporation, a Japanese corporation (hereinafter "NSC"); Sumitomo Corporation, a Japanese corporation (hereinafter "SC") and NS CalComp Corporation, a Japanese corporation (hereinafter "NSCC" or "JV"). All of the above may be referred collectively as the "Parties", and NSC and SC may be referred to collectively as the "Japanese Parties". THE PARTIES AGREE AS FOLLOWS 1. In Section 11 (Renewal and Termination) of the 1994 Addendum, the first sentence is revised as follows: "In consideration for the changes, modifications, amendments and updates to the Joint Venture relationship set forth in this Addendum, all Parties agree to renew the terms of the Agreement until January 10, 1999, and thereafter the Agreements will be renewable for one or more two (2) year periods (each period together with the renewal term ending on January 10, 1999 shall be hereinafter referred to as "Renewal Term"), subject to irrevocable written notice of non-renewal being given by any party no less than one hundred twenty (120) days and no more than one hundred eighty (180) days prior to the end of this or any other Renewal Term." 2. A counterpart or counterparts of this signed Amendment with the original signature(s) and/or facsimile specimens of the original signature(s) of each of the parties shall be valid and binding. IN WITNESS WHEREOF, this Addendum has been duly executed by the Parties as of the date and year first above written. CALCOMP INC. CALCOMP PACIFIC, INC. by: /s/ JOHN C. BATTERTON by: /s/ JOHN J. MILLERICK ---------------------------- -------------------------------- John C. Batterton John J. Millerick President and CEO President and CEO NIPPON STEEL CORPORATION SUMITOMO CORPORATION by: /s/ SHIGERU SUZUKI by: /s/ KYOJI INOMATA ---------------------------- -------------------------------- Shigeru Suzuki Kyoji Inomata Director, Electronics & General Manager Information Systems Division Electric Equipment and Systems Dept. NS CALCOMP CORP. by: /s/ KATSUYUKI MUKOZAKA ---------------------------- Katsuyuki Mukozaka, President EX-10.30 4 RELOCATION AGREEMENT / JOHN C. BATTERTON 09/16/97 EXHIBIT 10.30 RELOCATION AGREEMENT I agree that if I voluntarily terminate or otherwise leave my employment at CalComp Technology, Inc. (the "Corporation") for reasons within my own control, within two (2) years from the date of actual payment to me by the Corporation of Three Hundred Thousand Dollars ($300,000) plus Federal and State gross up amounts, in connection with the purchase of my new residence in Orange County, California, I will promptly reimburse the Corporation the full amount of said Three Hundred Thousand Dollars ($300,000), plus the gross up amounts. If final pay and any other amounts due to me on my termination are not sufficient to cover all of the foregoing relocation payment, I promise and agree to pay upon demand to the Corporation the remaining balance. Notwithstanding the foregoing, in the event I terminate my employment as a result of a change of control as defined in the Change of Control Termination Benefit Agreement, dated March 7, 1997, between me and the Corporation, I shall not be required to reimburse the Corporation for any portion of said relocation payment. I fully understand the foregoing is not intended as a contract of employment for any period. This Agreement shall be governed by the laws of the State of California, exclusive of its conflicts of laws rules. Employee name: /s/ JOHN C. BATTERTON ------------------------- John C. Batterton Date: September 16, 1997 -- yh:11522 EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS 9-MOS DEC-28-1997 DEC-29-1996 DEC-30-1996 JAN-01-1996 SEP-28-1997 SEP-29-1996 4,913 15,290 0 0 43,178 56,762 3,971 4,603 53,734 57,765 100,638 146,199 70,191 60,843 41,535 33,952 230,153 276,085 111,081 84,968 0 0 0 0 0 0 470 469 109,989 152,035 230,153 276,085 159,919 168,370 159,919 168,370 135,780 130,427 135,780 130,427 61,020 69,813 0 0 2,920 0 (39,801) (31,870) 752 831 (40,553) (32,701) 0 0 0 0 0 0 (40,553) (32,701) (0.86) (0.78) 0 0
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